David Cameron is admitting in private that he has taken a risk in appointing Kenneth Clarke to the shadow cabinet, but he believes it is a crucial step in presenting a heavyweight, and more diverse, team for the Tories' general election campaign.

The deal to restore the pro-European former chancellor to the frontbench for the first time in 11 years - and after three failed bids for the party leadership - was sealed over a lunch of meatloaf on Saturday at the west London home of George Osborne. Clarke, 68, who entered parliament in 1970, will become one of the main faces of the Tories' economics team as shadow business secretary, in a role that will see him go head to head with Lord Mandelson. However, their clashes will have to take place in television studios, rather than in parliament, because Mandelson sits in the Lords. In other changes to the shadow cabinet:

•Chris Grayling moved to one of the top four positions as shadow home secretary;

• Dominic Grieve made way for him to take on his "natural role" as shadow justice secretary;

• Nick Herbert moved from that role to become shadow environment secretary, leading to Peter Ainsworth's sacking from the shadow cabinet;

• Alan Duncan made way for Clarke, and became shadow leader of the Commons;

• Theresa May moved from that position to replace Grayling as shadow work and pensions secretary;

• Eric Pickles became party chairman in a job swap with Caroline Spelman, who became shadow communities secretary;

• Mark Francois, the shadow Europe minister, moved into the shadow cabinet to reassure Eurosceptics that their voices will be heard regularly.

Cameron revived Clarke's frontbench career on the advice of Osborne for three principal reasons: to bring a heavyweight to the top team, amid criticisms that Osborne and Cameron look too young to cope with the economic crisis, to show that the Tories are not dominated by the upper middle classes, and to show that a party that almost split apart on Europe can now work as a united team.

But the appointment was only made after lengthy discussions between Clarke and Cameron, which focused on the former chancellor's passionate support for Britain's membership of the EU.

Clarke has refused to trim his views on the EU, although he made clear yesterday that British membership of the single currency is not "feasible" at the moment.

In March last year he rebelled against Cameron to vote against a referendum on the Lisbon treaty with the provocative declaration: "The origin of referendums lies with people such as Napoleon and Mussolini."

Clarke said yesterday that he would not oppose Cameron's European policy, which is to offer Britain a referendum on the Lisbon treaty until it is ratified by all EU member states and to find ways of opposing it even if it is fully ratified and enters EU law. In a statement he said: "I am a pro-European, David Cameron is Eurosceptic. I accept that the party has come to a settled view on European matters."

Cameron, who was passed over for a job as special adviser to Clarke when he became chancellor in 1993, accepts that such an old warhorse is not going to change his views and will not hide his support for the EU. But Clarke has given undertakings that he will choose his words with care, as he indicated in a series of broadcast interviews, making clear that British membership of the euro should not be on the agenda.

One senior Tory said: "Bringing back Ken back does not come without risks. David and Ken have spoken very openly about this. Europe was discussed right from the off when George suggested bringing Ken back.

"Ken will not change his opinions. It would be odd if he did. He has come back because the most important issue is the economy. Nobody is asking Ken to undergo a personality transplant."

Tory sources insisted that the arrival of Clarke did nothing to diminish the position of Osborne, who was damaged by the row over his meeting with Russian oligarch Oleg Deripaska last autumn.

Dividing lines of a big beast

Kenneth Clarke said yesterday he accepted the Tory party had "come to a settled view" on the EU which he will not oppose. This is what Clarke thinks on four key EU policies:

•The euro Clarke campaigned for UK membership, but accepts it is not "feasible" to join at the moment.

•The social chapter Clarke has no difficulty with David Cameron's pledge to restore the British opt-out, though he believes that it will be complicated because all 27 EU members must agree.

•The Lisbon treaty Clarke disagrees with Cameron on two fronts here: he believes the treaty will "make it easier to make decisions" in the EU and he opposes a UK referendum.

•Withdrawing Tory MEPs from the centre-right EPP-ED grouping in the European parliament Clarke believes this will diminish British influence